By KALPANA RASHIWALA

Relative stability

Relative stability. Deteriorating macroeconomic conditions have dampened the outlook for the industrial REIT/property sector. This, combined with rising supply, is likely to exert pressure on industrial rents. Compared to the office sector however – which saw a huge spike in rental and capital values over the past couple of years – we expect less downside here. Instead, we believe occupancy will be the key performance driver in the industrial space. We estimate that Mapletree Logistics Trust (MLT) can maintain a dividend yield of about 10% even with a bear case 80% portfoliowide occupancy scenario (versus 99.6% today). MLT’s suite of sale-andleaseback properties should partially shelter the REIT from lease renewals and occupancy worries. However, about half of the portfolio consists of multi-tenanted buildings that are more exposed to the vagaries of the market. We like MLT’s diversified (81 properties in six countries) and high quality (we expect occupancy to remain higher than average) portfolio.

Equity issue done and dusted. Unlike some other S-REITs who chose to wait and ‘ride out’ the market, MLT went through the pain of raising fresh equity in August 2008. The 3-for-4 rights issue at an issue price of S$0.73, versus current share price of S$0.39, brought in some S$606.7m in proceeds. MLT’s debt-to-asset ratio now stands at 0.385x as of 31 Dec 2008. About S$217m of debt is up for refinancing in 2009 (18.8% of total debt). Of this amount, about S$83m are term facilities maturing this year. The remaining S$135m are working capital lines which are reviewed annually. The manager said that while it expects the working capital lines to be renewed, MLT has sufficient committed lines to meet its entire FY09 debt obligations.

BUY with fair value of 45 cents. We expect cap rates to widen in line with weaker fundamentals. Our SOTP valuation of MLT is S$0.50 – this is equivalent to a 30% fall in capital values against most recent valuations. As we outlined in our Dec 2008 strategy report, we are selective buyers of industrial S-REITs. We expect news flow to be primarily negative over the next few months as the ‘real economy’ – as well as MLT’s tenants and endusers – start feeling the full impact of the global recession. However, we believe MLT can deliver reasonably stable income to unitholders over the next two years. On this basis, we ascribe a 10% discount to our SOTP value to reach a fair value estimate of S$0.45. We restart coverage of MLT with a BUY rating.

Stable and Resilient

MLT reported their 4Q08 results in line with estimates, mainly due to contributions from its robust acquisitions over FY08. Looking ahead, the trust doed not face major refinancing needs. A low gearing of 38.5% combined with an unencumbered underlying asset portfolio underpins its balance sheet strength. Maintain BUY, TP$0.44 based on DCF. MLT is currently trading at c.14% FY09-10 DPU yield.

Results in Line. MLT reported a 4Q08 topline of S$52.4m (+ 30% yoy, 14% qoq) on top of a 43% yoy growth in distribution income to S$28.3m. DPU was 1.46 Scts, an -18% yoy was due to higher share base from rights issued completed in 2H08. For FY08, the trust delivered a DPU of 7.24cts. Assets were revalued upwards by c. S$94m (+ 3.3%), resulting in an NAV of S$0.89. Gearing is at a low of 38.5%.

No major refinancing needs. We view that MLT does not face major refinancing needs as short-term debt of c. S$218m is just 7% of total portfolio which is currently unencumbered. These assets will form a strong collateral base for further new loans when needed. In addition, the trust has more than sufficient lines to meet its debt obligations. Post recap balance sheet remains robust (38.5% gearing) and is poised to ride out current tough economic times well.

Buy for sustainable yield. We believe MLT is likely to continue to deliver a sustainable yield of c. 14% FY09- 10 fully diluted yield. Our forward earnings estimates reflect a 10% decline in portfolio occupancy over FY09. Rolling forward our valuations, we derive a TP of S$0.44. Maintain BUY.

Stable growth

• In line. Full-year distributable income of S$97.4m was in line with expectations. However, full-year DPU of 7.24cts was above consensus and our expectations due to fewer units in issue than forecast after the rights issue. Full-year gross revenue of S$184.9m was up 30.5% yoy mainly on contributions from 11 acquisitions completed in 2008. Net property income margins declined from 87.4% to 86.1% on higher property-related expenses. Portfolio occupancy improved to 99.6% from 99.0% in the last quarter.

• Strong reversions in 4Q08. Average rentals achieved for leases renewed in the quarter were 51.2% higher than preceding rentals. These were mainly leases in Singapore and Hong Kong, and partly contributed by several new tenants who are data centre operators.

• Outlook not so negative. After the rights issue, MLT’s asset leverage is a healthy 38.1%. Short-term debt of S$218m (19% of total debt) due for refinancing in 2009 looks manageable. Despite the fact that acquisitions are expected to take a back seat, full-year contributions from the 11 acquisitions last year should supplement organic growth. Additionally, management highlighted that concerns over warehouse oversupply in Singapore are exaggerated, as 81% of the 682,000sq m of upcoming supply over the next two years has been pre-leased or is being built by end-users. In Hong Kong, MLT’s second largest market, there is no new supply expected for the two years.

• Maintain Outperform; unchanged target price of S$0.60 (discount 9.6%). We maintain our assumptions for FY09-10 and introduce our DPU forecast for FY11. MLT offers dividend yields of 14.1%. We remain confident that performance in the current year will be stable with some room for upside on the back of full-year contributions from the previous year’s acquisitions. Maintain Outperform.

MapletreeLog distributable income up 44% in Q4

MAPLETREE Logistics Trust (MapletreeLog) yesterday reported total distributable income of $28.3 million for the fourth quarter ended Dec 31, 2008, up 43.7 per cent from last year’s corresponding period.

But the distribution per unit (DPU) of 1.46 cents for the quarter was 18 per cent lower than Q4 2007’s DPU of 1.78 cents.

MapletreeLog attributed the drop to the full quarter impact from dilution following the rights issue completed in August last year.

For the full year, DPU was 7.24 cents, 10.2 per cent higher than last year’s 6.57 cents.

Last year, Chua Tiow Chye, CEO of Mapletree Logistics Trust Management (MLTM), the Reit’s manager, had said that the rights issue would leave MapletreeLog with a ‘robust balance sheet’ which would help make it ‘well positioned to operate in the current more uncertain times’.

Net property income for Q4 2008 rose by $9.8 million to $45.1 million. This was helped by a $12.1 million rise in gross revenue to $52.4 million due mainly to contributions from 11 new properties acquired during the year.

There was also a $1.4 million fall in Q4 borrowing costs despite the enlarged portfolio.

As at Dec 31, 2008, the trust’s portfolio comprises 81 properties valued at $2.9 billion, including a $94.1 million revaluation gain.

No new acquisitions have been planned for the near term.

Singapore properties accounted for close to half of Q4 2008 net property income, with Hong Kong properties contributing about a quarter.

Portfolio occupancy rates remain high at 99.6 per cent. The trust attributed the resilience of its portfolio to a diversified tenant base and strong leasing covenants.

MapletreeLog’s leverage ratio of 38.5 per cent, as at Dec 31, 2008, is marginally higher than the 36.9 per cent as at Sept 30, 2008.

However, it has assured that it has sufficient committed lines to meet its debt obligations when they become due – hence avoiding any refinancing risk.